NEW YORK: The biggest U.S. banks are expected to kick off the earnings season on a sour note next week due to falling interest rates, which may have pressured net interest margins enough to cause the sector's first year-over-year earnings per share decline in three years.
"Overall it's shaping up to be a pretty challenging quarter because of the net interest rate environment," said Fred Cannon, director of research for Keefe, Bruyette & Woods in New York, citing the flattening and temporary inversion of the U.S. Treasury 2-year/10-year yield curve during the quarter. As a result, bank investors will listen for executive reassurance on the net interest margin outlook and their ability to mitigate weakness, said Manulife Investment Management's Lisa Welch, who manages the John Hancock Regional Bank Fund.
"With rates being lower, we think mortgage activity will be very strong," said Welch, pointing to First Horizon as one bank that could benefit from mortgage demand. "Given that we've had some economic data that's been a little weaker is there any trend in credit costs that raises concerns going into 2020?" said Cronin.